Can I get finance for a private car sale?

Buying a car privately can have its perks: you might be able to bag a bargain, find a model that doesn’t enter the market very often, or avoid the dealership’s sales pitch.
 
But what happens if you need finance to buy it?
 
That’s when things can get a little more complicated – but not impossible. It might take a little bit more work to find the right lender, gather all the documents, and get the checks completed but you can qualify for a loan and split the cost of your new wheels into manageable monthly repayments.
 
Let’s dive into the details:

Is it possible to finance a car from a private seller?

Here at Carmoola we don’t finance private sales and only finance used cars from our list of over 8,000 approved dealerships dotted around the UK. However if you have just fallen head over heels for your neighbour’s wheels or a model you’ve found on your favourite listings website, you might need to find finance from another lender before you can drive off into the sunset.
 
The good news is that it is possible to finance a car from a private seller – but it’s not always easy.
 
There are a few reasons for this, but it typically all comes down to risk. Lenders fear the unknown (even more than spiders) and there are a lot of potential unknowns with privately sold cars. In fact, some lenders (us included) will refuse to finance private sales at all.
 
Those that do will need a lot of reassurance. They need to be sure that the car is in good condition, lives up to the promises shared in the ad, and is legally available for sale.

How does financing a private car sale work?

Car finance always starts with an application. Typically, you’ll need to share a few details including your name, address, date of birth, employment status, and income.
 
This information will be used to run a soft credit check to assess your eligibility and potentially offer you an approval in principle (don’t worry, it won’t affect your credit score). .
 
If you do find a lender willing to offer you a loan, don’t be surprised if you need to provide a bumper pack of extra details to get that final approval. 
 
The lender needs to be sure that the car’s value is in line with the sales price and that it’s legally available for sale with no outstanding finance.
 
It’s time to put your admin skills to the test and start gathering documents. Depending on the lender’s requirements, you might need to get:

• An HPI check
• A copy of the car’s service history
• Its most recent MOT certificate
• Its V5C or logbook

You might also be asked to book the car in for checks at your local garage and get its condition signed off by a qualified mechanic or find an independent valuer to check you’re not paying over the odds.

What types of finance are available for private sales?

There are three main types of finance that you might be able to get to buy a car privately:

Personal loan

With a personal loan, you’ll typically borrow the full amount needed to buy the car. This will be paid directly to your bank account, and you’ll then pay the seller.
 
As soon as the transaction is complete, the car will be all yours. Keep up with your monthly repayments and you can do whatever you like to your wheels – add a new sound system, change its colour (our pick? hot pink, of course), offer it up as part-exchange or even sell it.
 
As personal loans aren’t secured against your car, you’ll typically need a good credit score to qualify, and your payments might be higher than some other finance options.

Hire Purchase (HP) car finance

HP is one of the most popular types of car finance – and for good reason. It lets you spread the cost of your new wheels over one to six years, making a fixed payment each month throughout the loan term. Once the agreement ends (and you’ve paid the small Option to Purchase admin fee), the car will be all yours.
 
During the term, you’ll be the car’s registered keeper but not its owner - that privilege will stay with the lender. The loan is secured against your vehicle, so you can’t modify it or sell it until all your payments are made. While payments can be on the higher side (compared to Personal Contract Purchase) as you’re working towards car ownership, this type of loan can be more accessible to people with less than perfect credit scores.

Specialist private sale finance

Some lenders specialise in financing private sales. These might be personal loans or HP car finance agreements and you’ll need to repay the balance in monthly payments plus interest. Be aware that you might need to pay a higher rate of interest to offset the additional risk these lenders take on by focusing their business on private car buyers.

What are the things to consider before financing a private sale?

When you buy a car privately, you won’t benefit from some of the added security that comes from buying from a dealership with a reputation to maintain (Trustpilot reviews are powerful things).
 
You also might not have the same consumer protections; private sales bought using a personal loan operate on a buyer beware principle so it’s important you do your due diligence and carry out all the required checks before handing over your cash or signing on the dotted line of a finance agreement. 

With an HP loan, you will be covered by the Consumer Rights Act 2015 so, while checking you’re happy with the car’s condition is still important, you’ll have some protections. Under the terms of this legislation:

• The seller must have the right to sell the car
• The car must match the seller’s description of it
• The car must be roadworthy

When buying a car privately, there are also a few extra steps that should earn a spot on your to do list:

Check its condition and take a test drive

Take some time to check the car thoroughly, inside and out. Look for any obvious damage like dents, broken headlights, and scuffed upholstery as well as hidden issues like a faulty radio or sticky clutch. If the seller agrees that you can take a test drive, use that experience to test the car at different speeds and on different road types.

Get an HPI check

An HPI check will let you know whether there’s any outstanding finance due on your new car, if it’s been written off or reported stolen, and how many previous owners it’s had.
 
At Carmoola, we offer HPI checks for free in our snazzy app – that’s right, you can enjoy complete peace of mind without paying a penny.

Check the documents

Ideally, your car will come with a full-service history, a V5C logbook, and MOT certificate. Looking over this paperwork will show you whether it’s had any serious issues in the past and how many miles are (officially) on the clock.

What are the pros and cons of financing a car from a private seller?

No matter whether you buy a car from a private seller, an independent dealership or a glossy franchise garage, there are pros and cons of every option.
 
When it comes to financing a privately sold car, it’s worth considering:

Pros

You could save money

Buying a car privately can be one of the cheapest ways to buy a new car. Individual sellers don’t have to cover the overheads that a dealership does and might price more competitively to get a quick sale.

You might find more variety

Some franchise dealers will only sell models by one manufacturer and independents can be limited by forecourt space. The Internet doesn’t have these restrictions so you could find more unusual makes and models on the likes of AutoTrader, Facebook, eBay and other listing sites than you would by looking at a traditional dealership.

Cons

You’ll have fewer protections if something goes wrong

With a private sale bought with cash or a personal loan, your purchase won’t fall under the Consumer Rights Act 2015 (it will if you have an HP loan). That means if something goes wrong, it’s up to the seller whether they agree to take the car back and give you a refund or even fund any existing repairs. If they refuse, you could be left having to pay out of pocket yourself. With an HP loan, you’ll still be entitled to a refund if the car isn’t roadworthy, doesn’t match the seller’s description, or if the seller doesn’t have the right to sell it. 

You won’t have any guarantees or warranties

While they’re not always offered, many dealerships offer a guarantee or warranty with the cars they sell. If the worst does happen and something goes wrong, these additional protections might mean it’ll be quicker and easier to get the repairs you need.